lululemon Navigates FX Swings & Demand Shifts: Can It Stay Nimble?

lululemon athletica inc. LULU is navigating a complex retail environment, marked by macroeconomic caution in the United States, rising tariffs and persistent foreign exchange (FX) headwinds. In first-quarter fiscal 2025, FX had a 20-basis-point (bps) negative impact on the gross margin and contributed to SG&A deleverage through a revaluation loss. These currency pressures are expected to persist, with gross margin expected to decline 200 bps in the second quarter and 110 bps for fiscal 2025, mainly driven by FX and tariffs headwinds.

On the demand front, the U.S. consumer is growing cautious, leading to softer store traffic and a clear shift in spending behavior. Shoppers are showing greater preference for distinctive, innovation-led products while pulling back on core or seasonal styles. This behavior suggests that while lululemon’s product innovation is resonating, the broader environment is making consumers more selective, resulting in flat comps despite higher average transaction values and premium market share.

Despite these challenges, lululemon’s first-quarter fiscal 2025 revenues grew 7% year over year (8% in constant currency), led by 22% growth in China and strong momentum across APAC and EMEA. In the United States, revenues grew 2%, marking an improvement in the recent quarters, but caution lingers.

To defend margins, the company is executing multiple mitigation strategies, including selective price increases, dual sourcing and tight cost control. A debt-free balance sheet with $1.3 billion in cash gives lululemon ample room to invest through uncertainty.

Looking ahead, lululemon expects 7-8% fiscal 2025 revenue growth, continued strength in China and the Rest of World. With continued innovation across its five core activities — yoga, run, train, golf and tennis, and strong grassroots brand engagement, the company remains nimble and poised for long-term growth despite near-term margin headwinds.

How LULU’s Rivals Are Tackling FX & Demand Headwinds?

As lululemon grapples with foreign exchange pressures and shifting consumer demand, rivals like NIKE Inc. NKE and Under Armour UAA are deploying their strategies to navigate similar macroeconomic headwinds and evolving shopper behavior.

NIKE faced significant FX and demand headwinds in fiscal 2025, with reported revenues down 10% and the gross margin contracting 440 bps in fourth-quarter fiscal 2025. Currency-neutral revenues also declined 9%, while NIKE Digital saw a sharp 26% drop. To tackle these challenges, NIKE is executing its “Win Now” strategy, realigning around sport-led teams, reducing exposure to China in its sourcing mix, implementing targeted price hikes, and refocusing on full-price sales across NIKE Direct and wholesale channels.

Under Armour also faced notable FX and demand challenges in fourth-quarter fiscal 2025, with international markets pressured by unfavorable currency rates and softer consumer sentiment. Revenues in EMEA declined 12% and in the Asia-Pacific fell 17%, both negatively impacted by FX. To navigate these headwinds, the company is sharpening its focus on inventory discipline, regional pricing actions, and restructuring initiatives. It is also investing in brand elevation and targeted marketing to reignite demand and drive profitable growth.

The Zacks Rundown for LULU

lululemon’s shares have lost 48.6% year to date compared with the industry’s decline of 28.5%.

From a valuation standpoint, LULU trades at a forward price-to-earnings ratio of 13.13X, higher than the industry’s 10.9X.

The Zacks Consensus Estimate for lululemon’s fiscal 2025 earnings implies a year-over-year decline of 1.5%, whereas the consensus mark for fiscal 2026 suggests growth of 7.5%. Earnings estimates for fiscal 2025 and 2026 have been southbound in the past seven days.

LULU currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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